Demoulas fights to stay at Market Basket helm

SENTINEL & ENTERPRISE / BOB WHITAKER
"If they remove me, what kind of message is that to the company?" Market Basket CEO Arthur T. Demoulas said during a visit to The Sun in Lowell Thursday.

LOWELL -- The decision of no more than three Market Basket board members at a meeting next week could drastically alter the future of the 71-store grocery chain that has expanded steadily from its Lowell roots into a company with $4 billion in revenue, its CEO warns.

The founding Demoulas family has battled over the company for years, often in court, and now votes may be in place to remove Arthur T. Demoulas, son of one of the founders, as chief executive officer. Since Demoulas was appointed CEO in 2008, Market Basket has increased sales by one-third, added roughly 8,000 employees, maintained one of the highest profit margins in the business, and won acclaim from industry analysts, according to the company.

Demoulas, in rare public statements made in an editorial board meeting with Sun editors and reporters Thursday, said the potential for his ouster had him most "concerned for the organization and its people."

"If they remove me, what kind of message is that to the company?" he said.

Demoulas is the son of one of the company's co-founders, Telemachus "Mike" Demoulas. Arthur S. Demoulas, son of George Demoulas, the other co-founder, has led the charge against the CEO.

In court filings, Arthur S. Demoulas has reportedly accused the chief executive of reckless spending. A Suffolk Superior Court judge ruled last month that the company's board members must meet after members in support of Arthur T.

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sat out a previous meeting, avoiding a quorum and ensuring no vote could be held.

The seven-member board is now scheduled to meet Thursday in Andover.

The two sides have argued over control of the closely-held company for years. In the latest lawsuit, Arthur S. and two shareholders -- Fotene Demoulas and Diana Merriam -- allege that Arthur T. wrongly made business transactions with companies owned by his wife and brothers-in-law, and that he has been unwilling to provide information to board members.

The CEO's tenure "is littered with related-party transactions between (Market Basket) and entities owned by Arthur T. or his family members, and by a remarkable unwillingness to defer to the board," said the suit, which was filed in Suffolk Superior Court on June 26.

Previous board members were OK with that arrangement, the suit says. Market Basket says all business deals the company made were properly vetted.

But last month also saw a shift in control on the board, when the power essentially went from Arthur T. to Arthur S. So-called Class A directors, who are appointed by Arthur T., comprise two seats on the board. Two others are Class B, appointed by Arthur S.

The three independent board members, those with the power to decide whether to oust the CEO, are all relatively new.

One, Ronald Weiner, has yet to attend a meeting, according to the company. The others, Keith Cowan and Nabil El-Hage, are also relatively new.

That lack of experience with the company, Arthur T. Demoulas said, makes it difficult to understand how they could vote on such a key issue for Market Basket. In an interview, he repeatedly mentioned the company's emphasis on customer and employee satisfaction, including an employee profit-sharing plan that last year paid out $43 million.

"Not any of them know the culture of this business here," said the CEO, a 40-year employee of the company, also calling next week's expected vote "a predetermined assault." He said he was "anxious" to hear the rationale for removing him from the company.

But the other side points to the business experience of the three.

Weiner is a certified public accountant with a New York auditing firm, Cowan was a mergers and acquisitions executive for Sprint Nextel until last year, and El-Hage is a management practice professor at the Harvard Business School.

An attorney for the plaintiffs, Thomas Fitzgerald, declined to comment except for a statement. The membership change on the board "represents the beginning of a new era" for the company, the statement said, "with a clear focus" on performance and independent review.

Arthur S. Demoulas' side has described the expected vote as an attempt at better accountability and management, but Arthur T.'s paints it as a money-grab.

The company pointed to proposals by El-Hage in 2011 and former board member Kenneth Tuchman in 2010 to borrow $1.5 billion or more to pay out to shareholders. According to the company, five shareholders on Arthur S.'s side of the family were paid $500 million combined after taxes in the last 12 years.

Any change at the top could change the course of Tewksbury-based Market Basket, which says it has emphasized employees over profit margins, which it maintains are still higher than most in the industry. It has also avoided taking on debt, allowing it to keep lower prices, company representatives said.

There's "no question," Arthur T. said, that his ouster would put the company's longtime employee-focused culture at risk. In one sign of some worry among the company's 22,000 employees, an online petition had more than 3,800 signatures late Thursday night that says the CEO's removal would sacrifice customers and employees for higher profit margins and prices.

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